Paul swanson has an opportunity to acquire a franchise from the yogurt place, inc., to dispense frozen yogurt products under the yogurt place name. mr. swanson has assembled the following information relating to the franchise:

a) a suitable location in a large shopping mall can be rented for $3,500 per month.
b) remodeling and necessary equipment would cost $270,000. the equipment would have a 15-year life and an $18,000 salvage value. straight-line depreciation would be used, and the salvage value would be considered in computing depreciation.
c) based on similar outlets elsewhere, mr. swanson estimates that sales would total $300,000 per year. ingredients would cost 20% of sales.
d) operating costs would include $70,000 per year for salaries, $3,500 per year for insurance, and $27,000 per year for utilities. in addition, mr. swanson would have to pay a commission to the yogurt place, inc., of 12.5% of sales.

required: 1. prepare a contribution format income statement that shows the expected net operating income each year from the franchise outlet. 2-a.

compute the simple rate of return promised by the outlet. 2-b. if mr. swanson requires a simple rate of return of at least 12%, should he acquire the franchise